In today’s increasingly competitive marketplace
the quest for additional profits is of paramount importance not
only for continued growth and success, but for the survival of
the company itself. This is particularly true for undercarriage
specialists such as CV axle and rack-and-pinion rebuilders.
Niche market diversification can accomplish
economic and strategic objectives that will not only improve the
"profitable" cash flow of your rebuilding operation,
but also strengthen your company’s position in the marketplace
The profitability of a niche market opportunity
should not be the only factor considered when determining the
direction of diversification. Other economic and competitive issues
should be considered as well and incorporated in the diversification
plan. Elements to be considered in making the right diversification
choice include the following:
- Affordability of the investment in terms
of initial cost. This includes special
equipment, space requirements, personnel, training, documentation,
core and new parts acquisition expense, etc. You don’t want to
place yourself in a situation where a high initial cost places
an undue burden on your present operating capital and reserves,
and therefore negatively impacts your current production and sales
capabilities. The availability of reasonable leasing or financing
terms can determine the feasibility of the investment as well.
- Based on the profitability of the investment,
what is the break-even point (BEP) and return on investment (ROI)
potential. A high profitability
niche with a low investment cost will give you a fast BEP and
high ROI potential. A high investment cost, even though it might
have high profitability, could extend your BEP inordinately and
provide for a lower ROI figure. This could be disastrous if market
conditions or demand changes, since the break-even point is further
extended and the ROI is further reduced. In general, low asset
intensive businesses with high margins have the highest profits
and potential for sustainable growth.
- Implementation time.
A quick and efficient setup reduces down time and provides for
fast production capabilities and profitable cash flow generation;
this is what we are all seeking.
- Marketing considerations are internal
and external. They include such
variables as what is the adequacy of the existing distribution
network, to an analysis of the competition’s objectives, capabilities,
strengths and weaknesses.
- Strategic objectives.
Diversification should be synergistic whenever possible by introducing
a complementary product line. You should be seeking sole-source
convenience shopping for your customers by introducing a line
that increases your product coverage. This will not only provide
you with additional sales, but it will also increase the market
penetration of your existing product lines.
By increasing product line coverage, an additional
benefit accrues that can provide competitive advantages as well;
this is complete system diagnostic capability and improved technical
support and service. A rack-and-pinion rebuilder that starts rebuilding
power steering pumps can now completely diagnose the hydraulic
steering system for a rack-equipped vehicle and vice-versa.
My company, P.S. Systems, Inc., Miami, FL,
is an experienced power steering component rebuilder. We specialize
in all domestic and imported rack-and-pinions, gearboxes, pumps,
control valves and cylinders for automotive as well as heavy duty
trucks. We are an authorized CV joint and axle rebuilder as well.
The company is divided into four separate departments for production,
cost and sales tracking purposes. These departments are domestic
rack-and-pinion, import rack-and-pinion, pumps and gearboxes,
and finally, CV joints and axles. Of these departments, the pump
and gearbox department accounts for about 25% to 30% of all sales.
Remember, for every power steering rack-and-pinion
unit there is a power steering pump. For every pump that is not
connected to a rack-and-pinion, there is a power steering gearbox.
This department’s gross profit margin, however, constantly exceeds
those being achieved by the other departments in my business by
a factor of 200% to 300%. What is remarkable is that this department
uses the least amount of manpower, facility space, tools and equipment,
and parts inventory.
Howard Coggenshall the technical director for
Partcraft, Inc., a full-line power steering parts supplier in
Lancaster, CA, states, "Rack-and-pinion rebuilding seems
to be the most likely tie-in with other front-end products – that
is until you look more closely. There are still hundreds of thousands
of cars and trucks out there with old-fashioned gears and every
vehicle with power steering has a pump. I honestly can’t understand
why a rebuilder who is familiar with high-pressure hydraulics
would let this segment of the market get away."
The procedures used in rebuilding power steering
pumps and gearboxes are similar to those used to rebuild rack-and-pinion
units. The units require the removal and replacement of certain
parts and the machining of others to get the desired finish/condition
for proper hydraulic operation. Some specialized assembly methods
and tooling are required in addition to the hydraulic testers
necessary to verify the desired operating parameters.
Some examples of the average parts and labor
costs for rebuilding both domestic and imported units (items such
as seal kits, bearings or bushings, cam packs, shafts, core utilization
costs, etc.) have been included in charts within this article.
For illustration purposes, a labor rate of $10 per hour is being
used. Please note that the asterisk preceding the make/model indicates
a heavy duty component, i.e., truck.
The really good news – profits!
The examples illustrated in the Pump Profits
chart on page 40 indicate our average selling price to the installer
level in our marketing area. In most locations around the country,
an increase in the selling price would be expected. Notice the
amount indicated in the last column – gross profit per man hour
– and be amazed!
Because of our high quality reputation and
in-house engineering expertise, several of our CV parts suppliers
suggested that we initiate a power steering start up program that
they could recommend to their customers. The power steering training
packages and test equipment that we have developed and fine tuned
over the years provide potential rebuilders with a complete and
affordable start up program. The program is designed to produce
a quality and efficient rebuilding operation immediately upon
I consider training to be the most critical
phase of the start-up program. This is where the in-house quality
standards and rebuilding methodologies are established and developed.
Quality is one, if not the most powerful competitive advantage
available to the rebuilder. Attention to detail and one-on-one
training is of the utmost importance to achieve competency and
skill levels to do the job right the first time, every time.
Each training session is proceeded by a technical
presentation of the hydraulic principals involved so trainees
have a better grasp of the forces at work. Trainees are familiarized
with core identification and selection, disassembly and cleaning
procedures, analysis of construction designs, parts interaction,
correction of damaged areas, machining/honing and polishing operations,
and in-house developed methodologies for boring, sleeving and
Testing procedures, problem identification,
and corrective action methodologies are also demonstrated. We
only train up to two personnel from one company at a given time.
Training sessions are held from 8:00 a.m. to 5:00 p.m. Monday
through Friday. A half-day session on Saturday is available at
no extra charge.
Each pump and gearboxes training session is
one week long. Rack-and-pinion training sessions last two weeks.
However, we will custom tailor these programs to a rebuilder’s
needs; accelerated sessions are available.
A primary benefit of the training program is
the two documentation packages that our customers receive. In-house
developed technical information manuals contain not only a photograph
and application information for a particular unit, but descriptive
and quantifiable data for the core identification, assembly and
testing functions. The importance of the technical and descriptive
information provided in our manuals is described below.
Technical manual data
The photos on page 36 indicate the need
for technical data. Even though these two pumps look identical,
one has reverse rotation. The pump on the right has no threads
on left (L) and right (R) mounting holes. A complete supplier
information package for rebuilding parts equipment and tools is
also provided for our customers convenience as well as the ideal
work flow diagram.
As part of the training program, a set of rebuilding
tools is also furnished. For pumps and gearboxes, these include
a basic set of seal, bearing and bushing installation and removal
tools. These tools will cover most of the current applications,
both foreign and domestic. For the rack-and-pinion program, a
basic set of boring and sleeving tools is supplied. Shaft polishing
wheels are provided with all programs.
The training, tools, technical documentation,
and supplier information programs range in price from $5,500 to
$8,500, depending on the application. We assign training slots
and initiate construction of test machinery on a first come first
serve basis. Reservation and a deposit is necessary for us to
"lock in" the desired time slot and initiate work on
the test machinery of choice. Typically, a 30-day lead time is
required to complete the test machines due to the custom fabrication
The primary goal of testing is to verify that
the original parts and new parts being used, and the labor expended
by the rebuilder, result in the satisfactory performance of the
rebuilt components. When dealing with hydraulics, minor imperfections
in parts or labor can render a unit unusable or unsatisfactory
in performance, immediately or prematurely, during the warranty
This causes returns accompanied by possible
labor (up to four hours per installation) or other claims including
those of a liability nature. It is therefore imperative that each
and every unit being rebuilt is tested to ensure that the proper
operating parameters are being met and satisfied. Complete and
operationally simulated testing procedures assure and verify the
high quality of the rebuilt product.
What does operationally simulated testing mean?
Ideally, you would want to duplicate the exact operating conditions
found in the vehicle. Take, for example, our power steering pump
tester and how it is designed to handle this operationally simulated
testing requirement. For automotive and truck steering systems,
the maximum steering effort in a vehicle occurs during low speed
maneuvering, as in a parking situation. Not only is the resistance
to movement at a peak, which requires high power levels, but the
power source (the power steering pump) is being provided with
its lowest energy input (idle speed).
Here you have a condition when maximum power
output from the pump (flow rate and pressure) is being provided
with minimum power input (lowest rpm). To operationally depict
this condition you would have to test the power steering pump
at idle speed.
Let’s look at another testing parameter – noise.
The operational test for noise should be conducted at a higher
rpm since this condition normally is amplified as the rpm is increased.
To satisfy these two diametric situations, you need a variable
speed control feature on the tester. Furthermore, noise analysis,
especially for automotive applications, requires a quiet operational
platform. This necessitates an enclosed motor cabinet for motor
To reduce the possible aeration and noise that
can occur during initial start up, which would slow the test,
the machine comes equipped with a pre-start priming system that
also pre-lubricates the test unit to prevent damage.
Another factor that affects noise and leakage
potential is the side-load thrust being generated on the pump
shaft by a tensioned belt driven pulley. Since this is the typical
configuration found on most vehicles, both large and small, the
tester must duplicate it at the correct belt tension for any particular
Insufficient belt tension can cause slippage,
and excessive tension can cause pump damage. Our tester satisfies
this condition by the use of a novel adjustable pneumatic loading
system. This system allows quick connection and disconnection
of the belt from the test pump and variable belt tensioning adjustment
through the use of a conveniently mounted pressure regulator.
For those wishing an affordable universal tester
for pumps, racks and gearboxes, our pump tester can be modified
with an expandable option to test rack-and-pinions and gearboxes.
The basic pump tester sells for $5,900 with the deluxe tester
selling for $9,025.
P.S. Systems’ deluxe multi-purpose gearbox
and rack-and-pinion tester with its high-load simulation capability
is designed to be able to perform nine operational hydraulic tests.
In addition, the unit has a unique built in air flush and air
test system with low pressure leak down test capabilities. The
rack-and-pinion and gearbox testers range in price from $8,900
to $13,500. These machines are patent pending.
Total investment cost
In addition to the training program with its
attendant documentation and tooling packages, and the test equipment
cost, the following items need to be considered when establishing
the total implementation costs of diversification:
- Initial core acquisition and new part inventory.
- Additional special tooling and equipment,
personnel and other related costs during setup, etc.
Depending on the scope and size of the intended
program, these can range in price from a low of about $2,000 to
more than $10,000. For example, let’s take a pump program using
the top of the line tester and a $5,000 additional start up cost.
|Deluxe Pump Tester||$ 9,025|
|Pump Training/Documentation||$ 5,500|
|Initial Cores and New Parts||$ 3,000|
|Other Costs||$ 2,000|
|Total Diversification Cost||$19,525|
With a $3,000 initial core and new parts investment,
and using the pump models described in the pump cost charts, about
110 pumps could be rebuilt for the initial inventory if grouped
in the following fashion. This is with a 10% unrebuildable rate
for the cores.
(20 of each model) 60 total;
(10 of each model) 30 total;
(10 of each model) 20 total.
This initial 110 pump inventory should result
in about $7,600 in gross profits. Gross profits would increase
as this inventory is turned over since the cores would be exchanged
rather than purchased, as was originally done. Assuming a turnover
rate of about 100 pumps per month, the break even point for this
first investment would be reached in a little less than three
Supply + demand = diversify
In conclusion, these are some of the thoughts
expressed by three of the top suppliers in the power steering
industry on the profitable niche opportunity rebuilding power
steering pumps and gearboxes.
Howard Coggenshall, technical director, Partcraft,
Inc., Lancaster, CA: "As a full-line supplier to all levels
of the power steering remanufacturing industry, I see and talk
to just about everyone in the business. I can positively state
that the most successful rebuilders are those who have diversified.
"The day of the rack-only rebuilder is
passing and the business is going to those who can supply full-line
steering products. It’s just common sense – no WD wants to buy
pumps from Joe, gears from Phil, and racks from Stan when he can
get it all from Bill."
John Galloway, market segment manager, Freudenberg
NOK (Transtec), Milan, OH: "I feel that the remanufacturing
of pumps and gears is a natural extension of the rack-and-pinion
business. It closes the loop on the hydraulic steering system
and immediately expands the remanufacturer’s customer base."
Michael DeGrott, president, D.M.S. Inc., Phoenix,
AZ: "We have seen a continually increasing demand to supply
a growing number of "hard parts" to the power steering
rebuilder, especially in the areas of pumps and gears. Heavy-duty
gear components command a growing percentage of our manufacturing
capabilities due to popularity and longevity of these vehicles
in both military and commercial use."
Aguilera has been in the automotive rebuilding
industry since 1984. In 1980 Aguilera became involved in a machine
shop partnership that manufactured high performance marine gas
and racing engines. In 1984, a rebuilder introduced him to rebuilding
power steering pumps and gearboxes. Soon after he opened P.S.
Systems in Miami. He has a degree in Ocean Engineering, has worked
for the Navy doing logistical and reliability related analysis
and program management, and also for the Corps of Engineers doing
coastal engineering and economic analysis.